The Coming Cellular Gold Rush in the Wild, Wild South: Sub-Saharan Africa
By Heidi Kriz, Mon Jul 16 00:00:00 GMT 2001

Wireless will bring Africa up to speed, say its leaders.

Sipho Goubule, a South African who lives in a rural township in the center of the country, remembers with terrifying clarity the night the one room shack he lived in burnt down to the cinder block floor - all because he didn't have a telephone to call for help.

"I ran to my neighbor's house - at least half a mile away - because he was the closest person to my house that actually had a telephone. But it was too far, and by the time I got back, it was too late," says Goubule, sadly.

The lack of telephone service for Goubule, and many of his neighbors, is not necessarily a personal, economic one. Goubule has a job, and would happily pay for service - if it was available.

But even in South Africa, a far more developed country than almost any other on the continent, the burden of the cost of improving the existing landline infrastructure in order to achieve universal service, is too great for the government to bear. Especially when the government has to grapple with even more basic needs for the great majority of their population, including housing, food and education.

In fact, "teledensity" - the ratio of phones to people in all of Africa - is shockingly low. According to Jan Mutai, the secretary general of the Pan African Telecommunications Union, the teledensity of sub-Saharan Africa is 0.51 access lines, for every 100 inhabitants.

Mutai says that to raise the teledensity of sub-Saharan Africa to at least 1:100, would require investing US $60 billion dollars. That is money that many countries in this region, thrown into turmoil by civil unrest and collapsed economies, simply don't have.

So what is the answer to this seemingly insoluble dilemma? Wireless.

For many African leaders, wireless is not just a practical solution to a practical need - it is a technology that has the potential to uplift and unify a continent that is besieged with greater social and economic challenges than perhaps any other region in the world.

And for the wireless industry worldwide, Africa - a continent of 700 million people and only 12 million landlines - is a veritable gold mine. But doing business in Africa - especially the sub-Saharan region - obviously presents some unique challenges.

The dream versus the reality

This is how Jay Naidoo, the Minister of Posts, Telecommunications and Broadcasting in South Africa, poetically describes the potential benefits of a uniform wireless system on the continent:

"We need a vision and a dream to bridge the gap between the information-rich and the information poor, between the urban and the rural; and between men and women. We need a dream to build a highway in the sky from the tip of Africa in the north of Bizarre in Tunisia, to the tip of Africa in the south of Cape Agulhas in South Africa, connecting every village, school and clinic."

A beautiful vision indeed, but the hard reality is what it's always been for growth and change in Africa - the mountain-sized obstacles of political instability, desperate poverty, and cultural clashes between old regimes and new industries - have the global wireless industry more than a little wary.

Nevertheless the continent's potential for wireless operators to do business is breathtaking.

"The demand for telecommunications services in emerging markets presents huge opportunities for investors," underscores Naidoo.

Naidoo points out that Africa's governments cannot afford to carry the burden of bringing telecommunications to everyone, and that that agenda can be coupled with wireless companies' agenda to do business, take advantage of a primed market, and profit handsomely.

"The public sector alone cannot fulfill the investment needs in the infrastructure," says Naidoo. "This will have to become a shared responsibility through the building of effective partnerships. Such partnerships will develop a climate for sustainable investment in infrastructure that guarantees good returns on investment whilst at the same time closing the information gap. For global players, ignoring a potential market of 4 billion people in the developing world can surely not be a viable business strategy".

The cost of doing business

So what are the unique obstacles that most companies have to face?

"I'd say the biggest obstacle we face in doing business in Africa is sorting out an 'interconnect' deal with a country's PTT," says Walter Chang, senior VP of Millicom International Cellular S.A, which does business in Tanzania, Senegal, Ghana, Sierra Leone, and the Democratic Republic of the Congo.

An interconnect deal is the contractual arrangement that a wireless company has to work out with an African country's PTT, which is the organization that oversees a traditionally nationalized telecommunications system. Cellular operators must haggle with the PTT's over how much money the cellular operators will pay to the local telecom companies, for calls that involve at least one side of a call placed through the fixed line telecoms. Chang says that part of the difficulty in negotiating these deals is that African governments often want to charge cellular operators far beyond what is considered the international standard for an interconnect agreement.

"Traditionally, African governments, which tended to nationalize their PTT's, would count on them for a large amount of hard, foreign currency revenues, which they would generate from the making of international phones calls," says Chang.

Part of the problem with dealing with the PTT's, is that many have yet to be deregulated, which means that they are still a government monopoly, and still subject to the potential whimsy - or tyranny - of the government.

But that's starting to change.

"In the past two years we've started seeing more and more deregulation, with a move towards privatization, on the continent" says Ozgur Aytar, an analyst with The Strategis Group.

"Governments are beginning to recognize the advantages of a competitive market, and, of course, the advantages of helping bring information technology to as many people as possible in Africa," says Aytar.

The politics of change

But not all governments in Africa are eager to embrace the technology of wireless. Politicians like to point fingers during times of political instability. And instruments of change, like new technology, often bear the brunt of the wrath of angry leaders.

Take the strange case of cellular phone bashing that took place last year in Zimbabwe. Startlingly, the one doing the bashing was no less than President Robert Mugabe.

It happened in February, during the time a referendum on the adoption of a new constitution would have given Mugabe a massive surge in power. Mugabe's opponents were denied radio and television for rebuttal. So, they turned to their last remaining means of communication - their cellular phones.

A SMS message was bounced around Zimbabwe from phone to phone, among hundreds of thousands of people. The message read: "No fuel. No forex. No vote."

A simple enough message. But it was enough to light a fire under the already incendiary Mugabe. After he lost the vote on the referendum, his cronies in government vilified the man whose cellular phone company happened to carry most of the traffic, Strive Masiyiwa.

Insiders tipped off Masiyiwa that his life was in danger, and he was forced to hire bodyguards, and go into exile most of the time in South Africa.

But Aytar points out that such a draconian response from an African government is very rare on a continent that is eager to catch up with the rest of the world, economically, educationally and technologically.

In fact, the African Telecommunications Union says mobile phones will outnumber fixed line communications in five years. Part of the reason for this is a shift in international aid and funding. Instead of trying to resurrect irreparably collapsed landline infrastructures, organizations like the World Bank are focusing on funding for independent regulators, privatizing the local telecoms, and issuing cellular licenses.

The statistics would seem to point to that. The latest figures from The Strategis Group project that in Africa, where there are currently 18 million cellular subscribers in 2001, the figure will leap to over 45 million subscribers, including 3G subscribers, by 2007.

"I think it's a reality that Africa will become entirely wireless," Millicom's senior VP, Walter Chang convinced.

This, even in spite of what seems to be prohibitive cost barriers to owning and operating cell phones, for some of the world's poorest people.

"Many Africans really cannot afford the long-term ownership and use of a cell phone, when they have to worry about paying for their next meal first," says Chang.

So companies like Millicom are operating largely on a "pre-paid" plan basis in many developing regions like Africa. A user can pre-pay for the use of a phone for say, thirty minutes. Then, if the user wants to, and can afford to, he can have his phone "charged" up again for a designated amount of time.

Chang says that not only does pre-paid make good business sense for cellular operators, it makes socio-economic sense in many African countries.

"Many sub-Saharan African societies are cash-based; there is no such thing as credit," says Chang.

For example, in Senegal, where Millicom has just started doing business, the company only offers pre-paid service.

And some spirited entrepreneurs in Africa are already finding way to capitalize on that technology, so that even those who could not afford a pre-paid plan have some access to the phones. The entrepreneurs would cleverly take their own phone and plan and sell "use time" on the phone to others. For example, if a cell phone owner had US $10 worth of pre-paid time on his phone, he might then charge his neighbor twice the normal cost of a phone call for his neighbor's use of the phone.

"Many Africans have never even used a phone before," says Chang. "For them, they do not have the usual consumer concerns or interests like design, or fancy features. It's just about having access to a phone."

This is less true of Northern African countries, where the GDP is higher, and so is the rate of employment. Chang says in that region, many cell phone companies offer mixed services - both pre-paid and regular subscription.

"This is just one of the many signs that Africans want, need and are ready for cellular - and one of the many indications to the big cellular operators, who are still reluctant to operate in Africa, that they are missing out on the most potentially explosive cellular market in the world," says Aytar.

Finally, it seems, African governments are figuring out that telecommunications is the very blood of development. In addition to the general trend towards open competition and privatization, several African governments have joined forces with the United Nations to form the African Information Society Initiative. Their stated goal: to create a "sustainable information society" in Africa by 2010.

Heidi Kriz is a San Francisco-based freelance writer whose work has appeared in Wired, Red Herring, and PC Computing.